Oil could lead to the downfall of ISIS

One of the key factors to defeat the Islamic State of Iraq and Syria may be as simple as disrupting oil production at facilities in northern Iraq under its control.

“Focus should be put on the identification of the origin, middlemen, buyers, carriers, traders and routes through which oil produced in (ISIS)-held territory is trafficked,” wrote the authors of a report put together by the Paris-based Financial Action Task Force, an organization established to fight terrorist financing and money laundering.

Last June, ISIS seized oil fields near Mosul and Tikrit in the northern part of the war-torn country. It’s estimated that as much as 50,000 barrels a day is produced in ISIS-held territory.

But there appears to be some good news on the horizon. ISIS is having trouble turning the oil facilities into the cash bonanza for which it hoped.

“Their ability to efficiently extract oil, refine it and sell petroleum products have significantly diminished,” said the task force said in its report, released Feb. 27.

Nonetheless, the prospect of a terror group that has killed thousands, beheaded civilians including children and posted a video of a Jordanian pilot burned alive having access to petroleum production is frightening.

“ISIS control of major oil fields in the Middle East would be a significant national security and economic threat,” Ted Kassinger, a partner in the international law firm of O’Melveny and Meyers and a former State Department attorney, told Watchdog.org recently at the Platts North American Crude Oil Summit in Houston.

Coalition airstrikes in recent months have damaged the ability of ISIS to exploit the oil fields it has captured.

BLASTED: An aerial photograph showing what United States military officials describe as a Command and Control Facility in the town of Tikrit, Iraq, after air strikes appears in this recent undated military handout photograph.

 

So has the accelerated pace of declining global oil prices since last June.

Another factor? ISIS hasn’t been able to run the oil fields at anywhere near peak production.

ISIS — also known as the Islamic State in Iraq and the Levant, or ISIL — may have grabbed the facilities, but the Financial Action Task Force report says the loss of national and private-sector companies that used to run the operations has left the terrorists struggling.

“As a result, ISIL tends to use primitive techniques for extracting and refining oil,” the report said.

That doesn’t surprise Julius Walker, senior consultant at JBC Energy, based in Vienna, Austria.

“Running big oil fields with lots of infrastructure requires a lot of expertise,” Walker said.

The task force reported the airstrikes hurt ISIS so much it had to resort to “burning the crude in open pits that produce limited yields of poor-quality product.”

Then there’s the problem with distributing the oil.

The report’s authors, who cautioned that “insight into ISIL’s oil-related activities is limited” due to the lack of reliable information on the ground, say ISIS oil is routed through middlemen and smugglers who send it to nearby areas, including to the Syrian regime of Bashar al-Assad, which is embroiled in a civil war.

The terrorists sell the oil near the wellhead for about $20-$35 a barrel, well below the global price. Middlemen then sell the oil at between $60-$100 a barrel.

But it’s not easy to move the oil, even in the Middle East.

“It can’t legally sell that oil on the world market, so it has to sell it illegally some way or another,” Walker said. “That may be possible with small volumes. Syria is a very small producer … I don’t see how it would be possible to sell large volumes of crude oil into the international market, under the radar, as it were.”

Despite the presence of ISIS, Iraq’s oil production has been gaining steadily in recent years.

At the Platts oil summit, Antoine Halff, chief oil analyst at the International Energy Agency, said Iraq has accounted for 90 percent of OPEC’s oil capacity growth.

“So far, ISIS has had a limited impact on supply because most Iraqi production comes from the south … and ISIS’ reach hasn’t extended to the south and probably is unlikely to extend there because of the religious makeup and ethnic makeup of the population,” Halff told Watchdog.org. “But that doesn’t mean the south is immune to many risks.”

The task force warned that ISIS probably will respond by trying to gobble up more land to exploit more resources like oil and, sure enough, just days before financial task force report came out, ISIS launched an offensive into Libya.

“Cutting off these vast revenue streams is both a challenge and opportunity for the global community to defeat this terrorist organisation,” the report’s authors said.

Click here to read the entire 48-page report from the Financial Action Task Force

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